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East African hotel markets emerging from high supply growth cycle

Following a peak in the economic and hotel demand cycle in 2014, supply growth in East Africa has been at an unprecedented high level during the past three years. Demand fundamentals have been strong in a region which has experienced the highest level of economic growth in Africa in recent years. Yet supply growth, with the entrance of many global hotel operators, has outpaced demand in many markets. However, the hotel development pipeline has now reduced which will allow hotel performance to recover. Hotel investment in

East Africa has been driven by local private investors with access to prime land and lending capacity off their diversified balance sheets. We are seeing increased interest in acquisition opportunities in the region by foreign investors as the sector is maturing rapidly. International branding has increased significantly during the past five years, and new supply is, by global standards, generally of investment grade quality. We expect the coming years to see an increasing level of hotel conversions to international brands as owners seek broader distribution, while the budget and midmarket segments offer the best development returns in the medium term.

Over the past 24 months, Nairobi has undergone a high supply growth cycle, with more than 2,000 rooms entering the market, resulting in a 23% increase in supply. With currently close to 8,500 rooms, and about another 1,000 rooms anticipated to enter the market in the next two to three years, Nairobi is now nearing the end of its supply growth cycle. Performance is expected to remain under pressure in the short-to-medium term, however, long East Africa Hotel Market Overview | 2018 2 term fundamentals are strong. High tourist arrivals growth, public sector support for tourism, new air routes and corporate expansion will drive demand growth.

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